Ship Compliant Wine Blog

One of the biggest news stories in the beverage alcohol industry over the last year or two has been the intensified enforcement of trade practice violations by the federal Trade and Tax Bureau (TTB).

An industry circular posted by the TTB on Friday, November 8, 2018 points to the agency’s current engagement with this trend of enforcement, and provides all beverage alcohol suppliers and wholesalers guidance on what activities they should avoid in order to remain in compliance with federal rules. Increased enforcement has been a developing topic since early 2017, when the TTB first received an additional $5 million in appropriations from Congress to expand its investigations activities. For the TTB, trade practices violations were seen as a critical area of rules and regulations that required intensified education and enforcement.

As the circular indicates, despite these increased efforts by the TTB, the agency continues to see “significant and widespread” violations of trade practice rules. According to the circular, the violations that it sees includes such activities as (quoted from the circular, but not a complete list) :

Industry members paying fees or providing other things of value to retailers in exchange for display space or shelf space (including designated tap space), commonly referred to as slotting fees. In some cases, such payments are hidden in the company’s books as payments for samplings that never take place.

Industry members and retailers altering invoices in an effort to conceal the nature of inducement payments.

Industry members and retailers altering invoices in an effort to conceal the nature of inducement payments.

Industry members illegally operating without a valid Federal permit due to not timely reporting changes of ownership, management, or control over their operations.

Trade practice rules are intended to create fair competition and equal access within the beverage alcohol industry. They prevent certain actors from using their established wealth and presence in the market from getting unfair edge over other members of the industry. As the circular says, “[The TTB] believe[s] that the industry as a whole has the ability and desire to operate within the law.“

The circular includes encouragement for industry members to undergo a voluntary disclosure with the TTB for any violations the industry member may have committed. By voluntarily disclosing, an industry member will mitigate whatever action the TTB may take against them for the violation.

The TTB takes its role in enforcing trade practice violations seriously, especially with the additional resources it has had in recent years to engage in enforcement actions. Industry members would do well to also take the TTB’s actions seriously and ensure that they remain in compliance with the federal rules that govern their license.

We at ShipCompliant by Sovos recommend everyone to read this circular and review the federal (and relevant state!) rules regarding trade practice, and take any necessary action to get compliant and stay compliant.

For the second year in a row, this season — the post-harvest and pre-holiday time — is being marked by devastating wildfires in both North and South California. While this year’s conflagrations have not directly affected wine country as last year’s did, the fires’ toll does not occur in isolation. Everyone is impacted when communities are reduced to ashes, when our friends and neighbors suffer. We at ShipCompliant by Sovos again extend our deepest sympathies to those who have been impacted so far, and fervently hope that the weather improves and those brave souls fighting the fires can turn the tide of ruin.

In this week’s Roundup, we look at a circular issued by the TTB cautioning the industry to review their Trade Practice compliance efforts in light of the agency’s continued enforcement actions, the Brewers Association mulls amending the definition of craft beer to incorporate more “non-traditional” styles, and has the Robert Parker rating system lost its sense of proportion or was 2016 just really great for wine?

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

Regulatory News and Discussions

TTB Newsletter | Top stories includes two grape varieties that have been approved for use on American wine labels, information about service delays in our TTB call centers, an invitation to apply for the Assistant Director position in the Alcohol Labeling and Formulation Division, and another permit suspension resulting from a trade practice investigation. TTB

Winery Websites and ADA Compliance | The recent news of lawsuits filed against New York wineries has caused industry members to ask if they face any litigation risk if their websites are not accessible to people with disabilities under the Americans with Disabilities Act (“ADA”). JD Supra

Wine, Consumers and the Court | There is no other category of consumer whose day to day commercial habits are more impacted by politics than wine consumers. Fermentation

Industry Updates: Market Conditions and Developments

Pabst Says MillerCoors Is Trying to Put it Out of Business | Pabst Brewing Company and MillerCoors are going to trial, with hipster favorite Pabst contending that MillerCoors wants to put it out of business by ending a longstanding partnership through which it brews Pabst’s beers. Washington Post

Jim Bernau Responds to Copper Cane’s Joe Wagner | The article regarding Oregon Vintners Pushing Back on Copper Cane’s Labels generated a lot of interest, as did last week’s Joe Wagner Responds: Copper Cane owner explains his side of the story, published by the Oregon Wine Press. Wine Business

Why So Many 2016 Napa 100-Point Wines? | None of these were given lightly or without careful consideration of the hallowed position they hold among all the other great wines of the world that have received the pinnacle of wine criticism accolades throughout our 40-year history of Robert Parker Wine Advocate. Robert Parker Wine Advocate

Happy Halloween! We hope that everyone celebrates the fall season — the colorful leaves, the harvest, the night of spooks and treats — festively and safely. While you’re at it, why not also celebrate with the Roundup?

This week we report on a tax change occuring in Colorado that may affect wineries shipping DtC into the state. We then look at all the nuances for suppliers to be aware of when setting up in a state with franchise laws, a new career survey of industry members points out areas for change, and a new story reports on the missing story behind the Judgment of Paris.

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

Regulatory News and Discussions

TTB Newsletter | Top stories includes the publication of our latest strategic plan, a reminder for breweries that use wine or spirits barrels for aging beer, an announcement about our next malt beverage formula webinar, and three recent field enforcement actions.. TTB

Wine Supply is Hitting a Tipping Point | At some point as demand in volume flattens while bearing acres increase, we should expect to see a change in grape buying patterns from wineries and ensuing price changes depending on the specific region and variety. SVB on Wine

26 New Grape Varieties Identified in Bío Bío | A research project into old vines in southern Chile has identified 26 new varieties, previously unknown in the world, and over 60 ‘uncommon’ varieties growing in Bío Bío. Decanter

Among the ranks of beverage alcohol attorneys, there are few with the experience and depth of knowledge of John Hinman, founding partner of Hinman & Carmichael based in San Francisco. (Read their Booze Rules blog here.) So it was to our great pleasure that John recently joined us at ShipCompliant by Sovos to give a webinar presentation on navigating regulatory restraints when bringing products to market.

Beverage alcohol is a notoriously highly-regulated industry, and there are restrictions and limits on what suppliers can do to sell their products. These restrictions include licensing requirements, the need to register labels, and tax payments — but they often get even more nuanced and particular.

In an increasingly crowded market, where any room for suppliers to expand their presence is precious, these restrictions only add to the pain. And so it becomes invaluable to get ahead of the regulations and know what you are permitted — or prohibited — from doing.

This makes John’s presentation invaluable, as a resource cataloging the basic roadblocks that you will need to navigate on your way to market. If you missed the original presentation, we have posted it online available for you to watch here.

Highlights From the Presentation

There are so many particularities and nuances when it comes to legally distributing alcohol that it would be impossible to even brush the surface in a single webinar. However, John pointed out some key aspects to be aware of:

Understand the Three-Tier system: Beverage alcohol is not like any other commercial product, even if it acts like it at times. Many other industries break down into different producers, distributors, and retailers of goods — but few have legal mandates that require these to be separate entities. Know that, when entering the industry, you may not be able to engage in all the normal business activities you think you should.

50 States Means 50 Different Sets of Rules: The 21st Amendment not only revoked the rule of Prohibition, it also granted broad power to each state to regulate and control the beverage alcohol market in its borders. While there are some general patterns, each state is unique and has to be looked at freshly each time. You might know how to sell wine in California with your eyes closed, but New York is a whole different animal.

Recognize the Different Routes to Market: As with the broader retail market, consumers are increasingly looking for ways to purchase alcohol outside of traditional stores, and laws are changing to accommodate this. Currently, 45 states and D.C. permit wineries to sell and ship directly to their residents. And every state grants at least some right for manufacturers to sell directly to consumers at their production facilities. While the rules can still seem hidebound (for instance, while wineries have a large map at play for direct-to-consumer shipping, retailers, breweries, distilleries, and importers are much more limited), the general trend has been to remove barriers. It is critical for alcohol producers to be aware of these alternative paths for selling their products going forward, while also being aware of the limits that currently restrict them.

Be Aware of the Gotchas: While the prospect of getting a product to market may seem rosy at times, there are still a number of ways for things to go sour. A major area of concern for producers are states with franchise laws in place. These laws delimit the ways that producers and wholesalers can set up distribution agreements — and more critically, how these agreements can be renegotiated or terminated. A producer who is cavalier about setting up a distribution agreement could find itself stuck in a rotten deal with no prospect for escape.

Another area of concern are restrictions on advertisements by producers, which has especial importance in the world of social media. Producers need to be aware of state and federal laws that restrict how they talk about their products and where they are available for sale. A stray tweet that unfairly singles out a particular liquor store, or a Facebook post about an upcoming wine-and-food pairing, could get a producer in trouble. To prevent this, anyone engaging in the beverage alcohol industry needs to stay vigilant with their messaging.

We again want to thank John Hinman for his wonderful presentation, and all the work he has done to make the beverage alcohol industry thrive.

These are heady days for sales tax wonks, as state after state works to pass rules and regulations that will allow them to impose sales tax obligations on sellers with no physical presence in their borders. This state of affairs was set up earlier this year by a U.S. Supreme Court decision, South Dakota v. Wayfair, which we have written about here.

Generally, these amended rules will not change things for wineries making direct-to-consumer (DtC) shipments, as many states already required them to collect sales tax as a condition of getting a DtC license. However, there were a few exceptions.

Recently, one of those exceptions, Colorado, announced that it will soon begin requiring out-of-state sellers to start collecting and remitting sales tax on their sales to Colorado residents. This will equally affect wineries shipping DtC into the state as it does any other remote seller.

According to the notice issued by the Colorado Department of Revenue, starting on December 1, 2018, remote sellers will need to begin collecting sales tax on their sales to the state if in either the previous or current calendar year they have made $100,000 or more in gross sales delivered in Colorado, including exempt sales; or 200 or more separate transactions selling goods delivered in Colorado.

Notably, this change will also affect any winery that has already has a Retailer Use Tax account in Colorado. If you have a Retailer Use Tax account, and will exceed the thresholds listed above, you will need to close that account and create a new Sales Tax Account.

Businesses can register their Sales Tax Accounts as of November 1, 2018, and new registrants will not be required to collect sales tax on sales made before December 1, 2018. Information from the state about these rule changes, and how to manage your Colorado tax accounts can be found here.

This all comes in light of a recent post by the Tax Foundation ranking Colorado last among states in their preparation to collect sales tax from remote sellers. And indeed, there are many unsettled questions regarding these rule changes. One major open question is how local taxes will be administered. According to the Colorado DOR, signing up for a Sales Tax Account will only obligate the registrant to collect and remit state-administered taxes (these include the state rate of 4.2%, along with some county, city, and district rates that are filed with the state regulators).

However, Colorado permits 349 county, city, and district tax jurisdictions to operate independently, including the administration, registration, collecting, and filing of sales taxes. This creates an enormous hassle for businesses by establishing separate tax systems within the state.

The latest information from Colorado is unclear as to whether remote sellers will be obligated to collect local-administered taxes, or just state taxes. But if the state does determine that local taxes will need to be collected, that will go far outside the bounds of what Justice Kennedy delineated as permissible for a state in the Wayfair ruling. While no challenge has yet been leveled against these new rules, Colorado seems to be blithely walking into potential litigation.

It is little surprise that states want to jump on the post-Wayfair bandwagon and begin reaping a new source of tax revenue. But Colorado’s situation should underscore the need for a careful, deliberate approach when establishing a tax scheme for remote sellers. Old rules that seemed to work when all but a vanishingly small amount of retailers had physical locations in the state cannot be easily mapped onto out-of-state sellers.

At this time no legal challenge has been announced, but it is eminently conceivable that these rules will have to be litigated.

Still, wineries selling DtC into Colorado who meet the above thresholds should pay careful attention to these rule changes, plan appropriately, and make any needed adjustments in their tax accounts and elsewhere to make sure they will meet their obligations in the state. As things develop, if challenges arise or the state clarifies its rules, we will make sure to keep you informed.

Establishing your brewery’s brand in a crowded craft beer market can be challenging enough, and entering new markets with new products adds more fuel to the fire. But these challenges can be even further complicated by the bevy of regulations that apply to those in the beverage alcohol space. Between licensing, distribution logistics, and compliance obligations issued by governments at the local, state, and federal levels, expanding your brewery’s footprint can seem like a minefield at time.

But it doesn’t have to be this way. To help walk you through the preparation you need to complete before successfully conquering new territories and introducing new products to the market, we’ve put together a comprehensive – and free! – guide, “10 Key Steps to Expanding Your Brewery’s Footprint.” Figure out exactly what you need to do to become market-ready, from assessing your internal capabilities to knowing your audience to developing a foolproof expansion strategy to staying on top of compliance.

Branching out into new territories and launching new products can be challenging in a beverage alcohol industry ripe with regulatory requirements and complications. Between licensing, market analysis, distribution and supply chain logistics, and complying with regulations imposed by governments at the state, local, and federal levels, expanding your winery’s footprint can be one landmine of potential noncompliance after another.

How can you successfully navigate these complications, and ensure your products are ready to hit the market on time while fulfilling all your obligations? Fear not – we’ve put together a comprehensive guide to conquering the tricky landscape of getting your products to market! Learn what you need to know to prepare your business for growth, from assessing your own internal capabilities to building the right strategy to sorting out logistics and compliance issues.

It’s well into October now, which means the leaves are turning, the grape harvest is winding down, and all the beer is pumpkin spiced. Now’s also a chance for a brief pause before things really pick up for the holiday season, so why not relax a bit with the Roundup?

This week we have a couple in-case-you-missed-it posts from the regular blog feed on developments in the courts: first, our take on Tennessee Wine and Spirits Retailers Ass’n v. Byrd, a case out of Tennessee that will no doubt take up much of the oxygen over the next few months; and second, a Michigan case that once again rules that the state can’t discriminate against out-of-state retailers when creating retailer DtC shipping laws. Then, we look at what the recently negotiated USMCA trade agreement could mean for trading wine, how the 2018 harvest is shaping up (spoiler: it’s looking great!), and what an upcoming wine auction shows about historical tastes and preferences.

In other news for this week’s Roundup, wineries are facing added pressure from Chinese tariffs, the beer industry discusses where it can find growth in the future, and American saké is coming into its own.

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

Regulatory News and Discussions

TTB Newsletter | Top stories includes updated guidance for the wine industry on filing returns and reports annually, and reminders about changes you can make to previously approved alcohol beverage labels that don’t require you to get a new COLA. TTB

What “Amazon Effect?” Wholesalers Conflate Issues | Wholesalers and retailers have a new boogeyman to scare legislators. It’s called Amazon. And in a few states they are conflating the so-called “Amazon effect” to prevent the expansion of consumer choice with winery direct shipping. Free the Grapes!

Augmented Reality for Wine: Past, Present & Future | With Treasury, Gallo, and other wine producers launching their own augmented reality wine apps, it’s worth reviewing the evolution of this digital marketing tactic within the wine industry and what to expect in the future. Medium

Wine As History, Not Just Industry | Christie’s, in advance of an important December auction, describes the discovery and character of a historic cache of old Madeira found in New Jersey’s Liberty Hall Museum at Keen University back in 2016. Fermentation

The District Court for the Eastern District of Michigan ruled that a Michigan law preventing out-of-state retailers from shipping DtC to Michigan retailers is unconstitutional on Friday, September 28. The case, Lebamoff Enterprises v. Snyder, is the second time in a decade that a court has ruled against a Michigan law of this type. (Read this post from the ShipCompliant archives.)

At issue was a law in Michigan permitting in-state retailers to ship alcohol directly to Michigan residents through common carriers, while preventing out-of-state retailers from doing the same (or more precisely, Michigan did not permit out-of-state retailers to get the license required to enable them to make direct-to-consumer (DtC) shipments).

Wineries have more expansive DtC rights due to both concerted lobbying efforts to change state rules, and a clearer jurisprudence: while the 2005 Supreme Court ruling Granholm v. Heald, which established the current legal basis for winery DtC shipping, clearly applied to beverage alcohol suppliers, its application to retailers and wholesalers has been the subject of debate. (This post talks about that debate.)

However, the District Court’s ruling in Lebamoff v. Snyder represents another win for retailers as they work to get Granholm applied to retailers. (The case also could have big implications for another current lawsuit, Tennessee Wine and Spirits Retailer Ass’n v. Byrd, which the Supreme Court recently granted certiorari to.)

Notably, this recent decision mimics a case from ten years ago, where a previous Michigan law preventing out-of-state retailers from shipping DtC while permitting in-state retailers to do so was invalidated. After that case, Michigan amended its rules to prohibit all DtC shipping from retailers (retailers were afterwards permitted to make DtC deliveries, but only using their own vehicles, which is a major blocker for out-of-state retailers).

Michigan amended its rules again last year to their current (discriminatory) state. Why the state thought the rule would pass muster this time is unknown, but apparently it is having no more luck now than it did back then.

Where this case will go is unclear. Michigan could appeal the ruling and hope that a higher court will be more favorable (but again, the Supreme Court could head this off in Byrd). The state could also cut its losses and repeal the rule, reverting to a situation where no retailer can ship DtC, as it did ten years ago. Or, the state could accept this ruling and come to grips with a world where retailers can ship DtC to Michigan residents.

Taking this last option might just be the easiest solution for the state. After all, there has been tremendous success in establishing licensing, tax, and reporting requirements for shipping DtC. While most states only allow wine producers to enter this market, in those 13 states, plus D.C., retailers have shown they can also comply with state rules. And this also reflects the broader economic reality too, where consumers want greater access to more products — even those not distributed in their state — and search for those products online.

How Michigan will react to this latest setback has yet to be seen. But there is the potential for the state to make a big change, and even possibly on the leading edge of a bigger wave of regulatory changes as retailers seek to gain the right to ship alcohol to residents of more states.

On Thursday September 27, the United States Supreme Court agreed to hear Tennessee Wine and Spirits Retailers Assn. v. Byrd (herein, just Byrd), which caused a tizzy to break out among those who follow beverage alcohol regulations. This is big news because for one, Byrd will be the first beverage alcohol case heard by the Court in over a decade. That last case, Granholm v. Heald, sparked big changes for the industry, including the development of the modern DtC shipping market.

But more than that, Byrd presents the opportunity for the Court to clarify many questions left unsettled after Granholm. Indeed, within hours of the Court granting cert, many were already proclaiming Byrd to be Granholm 2.

On its face, Byrd seems to revolve around a simple question: are Tennessee’s residency requirements for holders of an off-premises package retail license valid? Within that question, though, are deeper, major questions for the regulation of beverage alcohol, including the broader validity of residency requirements, and whether the ruling from Granholm — that the power the 21st Amendment grants to the states to regulate beverage alcohol can be abrogated by the Commerce Clause — apply to retailers and wholesalers as much as it applies to suppliers?

This later question has been an ongoing issue ever since Granholm was decided in 2005, with courts divided. This confusion have been problematic for retailers and wholesalers, though, as their efforts to enjoy the same legal standing that suppliers have had since Granholm have been stymied. In particular, access to the interstate direct-to-consumer (DtC) market that has exploded over the last decade has been greatly limited. (For more on how Granholm has been applied to retailers in the past, please read this post from our blog.)

However, it is far from certain that the Court will make a major ruling in Byrd. Not only is it notoriously difficult to predict how the Court will rule on a case, but there are many ways that the Court could issue a narrow decision and not get at the thorny issues that have excited so many of the boozeratti. Nevertheless, the Court taking up Byrd is still big news, even if the ruling does not provide satisfactory resolution to the unsettled Granholm issues.

What Is Byrd About?

Byrd looks at existing rules in Tennessee requiring all retail liquor store licensees (i.e. off-premises consumption package stores) to have maintained residency in the state for at least two years prior to applying for a new license, and for ten years prior to applying to a renewed license (and yes, the weirdness of these durations has been remarked on a lot). In addition, for corporations, these residency requirements apply to every director, officer, and shareholder.

For many years, the national chain retailer Total Wine and Spirits looked to enter the Tennessee market, but had been impeded by these residency rules. Nevertheless, the Tennessee ABC got word that Total Wine and Spirits was going to apply anyway, which would likely lead to a legal challenge. To head off that challenge, the Tennessee Attorney General filed suit to obtain a declaratory judgment regarding the constitutionality of the residency requirements. The Tennessee Wine and Spirits Retailers Association joined that suit as a defendant, arguing that the residency rules were valid.

The District Court for the Middle District of Tennessee ruled that the residency rules were unconstitutional, as they were discriminatory on their face against out-of-state businesses in a way that the plaintiffs could not justify under the state’s 21st Amendment powers. The District Court reasoned, following the U.S. Supreme Court’s ruling in Bacchus Imports v. Dias (1984), that beverage alcohol regulations that are based purely on economic protectionism are not granted the same deference as laws related to combating the perceived evils of the beverage alcohol market.

The 5th Circuit Court of Appeals upheld this ruling this past February, leading to the petition that the U.S. Supreme Court accepted.

What’s Really At Issue?

While the immediate issue seems to just be whether a business like Total Wine and Spirits can enter the Tennessee market, Byrd has the potential to drastically change 21st Amendment jurisprudence going forward.

For most of its history, the 21st Amendment (specifically clause 2) has been deemed to grant near carte blanche to states to regulate the beverage alcohol market in their borders. However, over the past few decades, the Supreme Court has been increasingly open to limiting states’ regulatory powers, particularly when those regulations appear to inhibit interstate commerce.

The last time the Court looked at the 21st Amendment was Granholm, in which the Court determined that rules in Michigan and New York permitting instate wineries, but not out-of-state wineries, to ship directly to their residents were invalid as discriminatory. But because Granholm primarily dealt with the rights of wineries, the case has often been narrowly applied only to suppliers (though there have been exceptions, which are again discussed here).

The Court in Byrd, therefore, could make a major splash in beverage alcohol regulatory jurisprudence by applying its Granholm ruling to retailers. If that were to happen, then all manner of state regulations could come into question. A wave of litigation could arise, as rules that appear to discriminate against out-of-state businesses get challenged under a new legal environment.

State liquor regulators would need to figure out ways to incorporate many more non-local businesses into their systems — or take away rights enjoyed by local businesses (to remove the stain of discrimination). As states act to further enable local businesses to operate in the modern economy (such as granting more rights to make DtC shipments), they will be faced with having to similarly enable out-of-state businesses. Indeed, there is good reason for people to call Byrd a potential Granholm 2.

What Might Happen Now?

The reigning scuttlebutt is all about the chance that Byrd will lead to a complete overhaul of the three-tier system and beverage alcohol regulations. And it is true that Byrd brings this possibility. But focussing on this one outcome can cloud one to the larger realm of rulings the Court could issue.

There is the one extreme outcome, that the Court will issue the major ruling that has caught the imagination of so many in the industry. It could determine that Granholm applies equally to all members of the beverage alcohol industry, meaning that regulations discriminating against out-of-state businesses will have to be reviewed, and those that cannot be justified under some reasoning related to preventing a perceived “evil” will be invalidated. (In this age, so far removed from the days of tied-house saloons and Prohibition, demonstrating those evils is also increasingly difficult.)

States with residency requirements, or those that grant only in-state businesses certain rights (or those that provide certain licenses only to in-state businesses), will need to amend or get rid of those restrictions. This could have major implications for the three-tier system writ large, as most of the original intent behind establishing this regulatory scheme was to privilege local operators (particularly the wholesaler and retailer tiers).

However, the other extreme is retrenchment and a reversion to the view that states’ 21st Amendment powers are unrestricted by Commerce Clause arguments. While overturning Granholm is extremely unlikely, the Court might at least rule that Granholm does not apply to any tier besides suppliers, enabling states to more freely discriminate against out-of-state wholesalers and retailers. This outcome may be unlikely, even outlandish, but it should not be overlooked as possibility.

In between these extremes, though, there is a sea of narrower rulings it could issue instead. Indeed, given the history of the Court and its generally cautious approach means a narrow ruling is more likely than a major one. One possibility is that Court could rule that, while the 2-year term is invalid, a state could still require some kind of residency for a license holder. Indeed, the fact that Total Wine and Spirits is looking to establish an in-state package store should dampen the argument by the Tennessee Retailers Association that the state needs to have proximate control over sellers of alcohol. In this way, the Court could remove barriers for retailers to establish themselves in Tennessee without also establishing a borderless market for retail sales of beverage alcohol.

And even if the Court does rule that Granholm does apply to retailers, that does not inherently mean that retailers will suddenly have the right to ship everywhere. Indeed, when courts have ruled in the past that a state has to grant retailer-DtC shipping rights equally to in-state and out-of-state retailers, those rights have often been taken away for everyone in order to remove their discriminatory effect. Similarly, even 13 years after Granholm, several states continue to prohibit DtC shipping even by wineries.

Predicting the actions of the Supreme Court is generally a fool’s errand. The Court is notorious for upsetting expectations and finding ways to narrow arguments so as to avoid making major decisions.

However, there are still reasons to be cautiously excited about the possibilities of Byrd. For one, the Court would not have taken up this case unless it saw there was an issue to resolve, and not just on a ticky-tacky issue like the proper time frame for establishing residency. For another, the Court on a broad level is moving to get a better handle of what might be called the new, modern economy.

Earlier this year, the Court made a major ruling in South Dakota v. Wayfair, upending decades of sales tax rules in an attempt to provide a tax regulatory scheme for the eCommerce world. Byrd, therefore, could be another chance for the Court to wrench a hidebound industry into the modern economy, by acknowledging that state borders are increasingly less relevant to the ways people buy goods these days.

At the time of publication, the Court has not set a date for the hearings in Byrd. It could be months before arguments are made, with months more before the ruling is issued. And even once that ruling is issued, there will be many more weeks, months, and years for its fallout to be worked out. So no one should hold their breath waiting for things to change. For now, it should be enough to know that the potential for change is out there.

Stayed tuned to this blog for further developments in this case, and other regulatory and market changes that affect the beverage alcohol industry.

Find out how ShipCompliant by Sovos can help your business stay on top of compliance by requesting a free demo.

Last week, on Thursday night, the U.S. Supreme Court agreed to hear Tennessee Wine & Spirits v. Byrd Clayton, causing the beverage alcohol regulation community into a tizzy. Though the case has the potential to mix up years of three-tier jurisprudence (particularly whether retailers can equally participate in the DtC shipping market), these are still early days and the Court has a habit of upset people’s expectations. So while we will be paying close attention to this case, we would recommend everyone not panic anytime soon. For now, we’ll provide you all with a measured overview of the case provided by the Alcohol Law Advisor blog.

In other news for this week’s Roundup, wineries are facing added pressure from Chinese tariffs, the beer industry discusses where it can find growth in the future, and American saké is coming into its own.

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

Regulatory News and Discussions

TTB Newsletter | Top stories include updated guidance for bonded wineries’ eligibility for annual reporting and advice on making changes to approved labels. TTB

American Saké Takes Flight | Thanks to a combination of limited options and consumer confusion about the category, until recently, finding a decent selection of Japanese saké statewide has been a challenge. Imbibe

Over the next couple weeks here at ShipCompliant, we will be getting prepared for Oklahoma to open up to DtC shipping of wine on October 1; if you are interested in knowing what is required to ship wine to Oklahoma residents, you can find more information here. But for everyone else, there’s still the Round Up to distract us. This week we look at some proposed rules to require wineries to install equipment to control ethanol emissions, how climate change could affect wild yeasts, and evidence of beer production from 13,000 years ago.

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

A World of Regulations: News and Discussions

TTB Newsletter | Top stories include improvements to Permits Online for amending trade names and new CBMTRA guidance for single taxpayers and importers. TTB

The Three Traps of Label Design | We should spend more time talking about wine labels, because they matter more than ever before – and badly-executed ones can be disastrous for your brand. Wine Intelligence

Often enough — and, likely more often than they’d prefer — brewers operate in a world of uncertainty. Will that new recipe taste good? Will my current canning machine meet my needs, or should I upgrade now? Is that new hot style a trend or just a flash in the pan?

At ShipCompliant, we like to bring clarity and guidance to beverage alcohol regulatory compliance. But we also have to admit that, as much as we might want to, we can’t control regulatory decisions. Instead there are a number of issues that are still undetermined and all we can do is wait and see how they play out.

Just because things can be uncertain doesn’t mean we can’t still talk about them. And so, we present here a brief look at some of the bigger uncertainties affecting the beverage alcohol industry, and in particular, how they affect beer producers and the sale and distribution of beer.

Taxes — What’s the Future of the CMBTRA?

It was a major coup last year when Congress passed the Craft Beverage Modernization and Tax Reform Act (CMBTRA) as part of the larger Tax Cuts and Jobs Act (TCJA). For years, advocates and lobbyists for the brewing industry strove to pass the CMBTRA (in particular, Brewers Association is owed a lot of credit). The bill began as a modest proposal to decrease the tax burden on small-sized producers, but ballooned as larger brewers and wine and spirits producers latched on. Despite garnering widespread support in both the House and Senate, the bill was languishing before its hasty joinder into the TCJA.

While the bill brought many benefits to the industry, the hastiness of its enactment resulted in some confusion and problems early on. There were questions about how would these reduced rates (or credits, for the wine industry) be filed with the TTB, how should importers claim the tax benefits, and how exactly would the bill’s new permission for brewers to transfer products in bond among each other work?

In the ensuing months, many of these initial problems have been addressed by the TTB. That does not mean, though, that all issues have been resolved. Indeed, perhaps the biggest uncertainty surrounding the CMBTRA is will it last? It is critical to remember that the CMBTRA has an expiration date on it. As written and passed into law, the special rates and procedures set up by the CMBTRA are set to lapse after December 31, 2019.

Many industry groups are working feverishly to get Congress to make the CMBTRA permanent — and hopefully to clean up some of the less-polished provisions while they’re at it. At present Congress is distracted by the elections, and who knows what will happen after November. Whether it can set aside political wrangling long enough to take action on the CMBTRA in the next year is, to repeat a phrase, uncertain, but there is reason to hope.

Any industry members who want the benefits of the CMBTRA to remain in place after December 31, 2019 would do well to reach out to their representatives in Congress and support other efforts by any state or national guilds or associations they are members of.

International Trade — What’s Up With Tariffs?

For an industry whose biggest domestic member is actually a subsidiary of a Brazilian-Belgium conglomerate, it should be no surprise that international trade issues can have a big effect on the beer producers. And so it was that, when the U.S. government announced it was imposing tariffs on a number of foreign products, brewers were quickly impacted.

At immediate issue are two tariffs that impact the supply chains and ability for brewers to expand their operations. (Note, so far, unlike wine and bourbon, beer itself has not been made subject to a tariff, only the component parts necessary to produce and distribute beer.)

The section 232 tariffs add a 25% tariff on all foreign produce steel (except steel produced in Argentina, Australia, Brazil, and South Korea) and a 10% tariff on all foreign produced aluminum (expect aluminum produced in Argentina and Australia).

The section 301 tariffs solely affect goods imported from China, but they deal with a much broader swath of commercial goods, including machines used to wash and sort seeds and grains, safety and relief valves, and other electronic appliances. Those tariffs are already in effect, but there are now proposed tariffs on goods that will have a further impact on brewers, such as iron and steel tanks and casks (i.e. kegs) and component parts of taphandles. Hearings on this latest group of section 301 tariffs took place in late August with the U.S. Trade Representative now determining whether (and when) to implement them.

Whether these tariffs are wise, productive, or otherwise merited is a much bigger discussion than there’s room for in this post. For now, we merely want to let brewers know that these tariffs are in place and are having an effect, though how they will ultimately play out is very much up in the air. The Brewers Association has a very handy review of these tariffs and what their impact on the beer industry is, where you can also share your personal experience with these tariffs.

Perhaps one of the most important developments for the beer industry (likely on par with the rise of IPA) has been the trend toward loosening restrictions on when and how brewers can sell and distribute their products. With Georgia changing its rules last year, brewers in every state now have at least some ability to sell their beer directly to their customers.

Being able to sell pints in supplier-owned taprooms, or even being able to sell six-packs and growlers for take-away consumption, has given brewers the invaluable ability to interact directly with their customers and develop the necessary connections to popularize their brands. Without taking anything away from the benefits and positive aspects of the three-tier system and supplier-distributor relationships, these self-selling permissions undoubtedly enabled the craft beer industry to become what it is today.

However, that does not mean that everything is settled. On one hand, there are ongoing efforts to expand these permissions, to remove size restrictions and other limitations that still inhibit the craft beer markets in many states. But on the other, retrenchment is still very much at risk.

Or even when a positive bill moves forward, it can be waylaid by contrary forces. Recent examples from Texas and Maryland showcase how things can go wrong even if they begin with the best of intentions. Ongoing efforts to change the laws in Wisconsin also demonstrate the pitfalls that can stymie easing of regulations.

And these are just rules that affect how brewers can sell from their own facilities. There are many more other sales restrictions that the industry is looking to relieve. These include greater permission for brewers to self-distribute to local alcohol retailers, and bringing some renewed sense of fairness and commonsense to the numerous franchise restrictions that states impose. While these restrictions may have once made sense, it’s increasingly difficult to justify them in the current state of the beer industry, with many small producers competing for space among a dwindling number of distributors.

Brewers and their trade organizations continue to make efforts to expand their ability to control their own distribution lines. How these efforts will play out over the next several years, though, is (wait for it) uncertain.

Regulatory Enforcement — How Will TTB And Other State Actions Proceed?

One of the driving stories this year in regards to beverage alcohol regulation has been the spate of enforcement actions taken by the TTB and state agencies in response to trade practice violations. Several accounts of distributors paying out hundreds of thousands of dollars in settlement claims, or even of the California winery that lost its Basic Permit for a day, have brought this issue to the fore.

Part of this trend comes from a renewed commitment from federal and state regulators to police trade practice violations. It also benefited from increased funding for the TTB’s investigation division, which has enabled the TTB to put more resources into the effort.

How these enforcement actions will play out is unknown, with the TTB playing its cards close to the vest. It’s certainly possible that after making a quick splash, these actions will fizzle out. Or, perhaps, they could lead to a larger change in the industry, with even the largest industry actors (and therefore those most immune from the risk of fee-based penalties) changing their practices to comport with the stated principles of trade practice restrictions.

As a matter of odds, the likely result is somewhere in the middle, with a few high-profile cases with large fees assessed, or even extended losses of permits, that eventually returns to the previous state of quietude. For now, brewers would do well to take note that these enforcement actions are going on and to make sure that they are staying in compliance will both federal and state rules.

Commerce Clause v. 21st Amendment — What’s Going On In The Courts?

Last, but certainly not least, there are several rather interesting court cases moving through the dockets, which have the potential to bring a profound change to beverage alcohol regulations.

In June, the U.S. District Court for the Western District of Missouri invalidated several of the state’s restrictions on certain advertisements, noting that the state’s claim that they were necessary was undercut by the numerous exceptions to those restrictions that the state allowed. Notably, the Court did not consider the 21st Amendment in its analysis, which generally gives states a tremendous amount of power in arguing the validity of their regulations. If this case is upheld by the 8th Circuit on appeal, it could create a whole new world of legal review of state regulations. (You can find a rather nice review of the case and its implications here.)

Then, in August, the 6th Circuit Court of Appeals ruled that a Tennessee law requiring that applicants for a Tennessee retailer license be residents of the state for at least the last two years. This particularly affected corporate retailers, as the residency requirement applied to all officers, directors, and stockholders of corporate applicants. Following the logic of the seminal 2005 U.S. Supreme Court case Granholm v. Heald, the 6th Circuit found that the 21st Amendment does not shield a state’s regulation from scrutiny under the Commerce Clause — and critically, the Court applied the Granholm ruling to retailers, not just suppliers.

These are just two examples, but they are on the forefront of judicial review of beverage alcohol regulations.

Bringing change through litigation can be very expensive and time-consuming. But often enough, major changes in laws have had to come from the courts (and certainly, not just when it comes to beverage alcohol regulation). How they will play out, whether they represent upcoming revolutions in beverage alcohol regulations or just odd blips on the radar, though, is unknown.

What’s Next?

What the future may bring is inherently unknown. Even the best predictors can be thrown for a loop. But as they say, forewarned is forearmed. Knowing what the future could bring is itself a tool that everyone should take advantage of. Hopefully, having some awareness of these ongoing regulatory issues will serve you well. After all, getting that new strain of hops to make good beer is only the start of the process — you have to also be able to sell it compliantly.

Find out how ShipCompliant by Sovos can help your business stay on top of beverage alcohol compliance by signing up for a free demo.

Notable trends: Oregon wines surging while Napa sales stagnate, Rosé on the rise and Pennsylvania as a leading shipment destination

Sovos today revealed data on the performance of the direct-to-consumer (DtC) winery shipping market through the first six months of 2018. Among the notable trends in the report were Napa County wine sales slowing but remaining steady while sales of Oregon wines rise, and Rosé continuing to build momentum after strong gains last year.

The annual DtC report is a cooperative effort between ShipCompliant by Sovos and Wines & Vines. The full version of the report is released each January. To create this report, Wines Vines Analytics created an algorithm that uses its database of U.S. wineries to extrapolate all direct-to-consumer shipments from millions of anonymized direct shipping transactions filtered through Sovos’ ShipCompliant platform.

The following results compare the first six months of 2018 to the first six months of 2017. Overall, the DtC channel showed strength. The total value of shipments rose 13 percent, above the 12.5 percent 7-year average increase. Total volume of shipments rose 12.29 percent, above the 11.5 percent 7-year average increase.

Oregon surges while Napa sees more modest growth

Among winery locations, Oregon showed 26 percent growth in cases shipped, surpassed only by Sonoma County at 29 percent. Napa County wines, meanwhile, only saw an increase in cases shipped by 0.4 percent. However, this can be attributed to a rise in the value of products shipped. While the number of cases shipped from Napa wineries did not grow significantly over 2017, the average bottle price (ABP) jumped an impressive 5 percent compared to the first six months of last year.

In terms of varietals, Rosé continued to produce strong results after making large gains in 2017. Cabernet Franc was also a big riser, and traditionally dominant Cabernet Sauvignon maintained relatively steady growth despite Napa’s less impressive performance. The final numbers for varietals:

Pennsylvania remained a top destination for wine, with shipments up 44 percent on volume and 40 percent by value. Pennsylvania had a breakout year in 2017 and should also be a top gainer in 2018.

Limited-production wineries show pockets of strength

Smaller wineries experienced large price increases. Most notably, Napa Red Blends saw an unprecedented increase in average bottle prices (ABP), skyrocketing 110% from $74 per bottle to $156 per bottle. This would seem to be result of club shipments to members at a handful of high-end wineries, lifting the ABP significantly in this segment.

Overall, ABP at limited-production wineries – which produce fewer than 1000 cases per year – increased by 10 percent. Other highlights in the limited-production category include:

As a result of price increases, limited-production wineries saw the largest increase in value of any category except the largest, which includes wineries that produce 500,000 or more cases per year. The difference between the increases in value and volume among limited-production wineries is uncommon. Final numbers by winery size included:

The 50K-49,999K wineries have underperformed thus far after having a banner 2017. However, autumn has historically been a healthy season in the DtC wine shipping channel, so there remains plenty of time for wineries in this category to gain ground.

About ShipCompliant by Sovos

Sovos offers a nimble software solution tailored to the unique compliance obligations faced by beverage alcohol businesses. As part of the Sovos suite of solutions, ShipCompliant users have access to constantly updated, accurate regulatory information for each of the jurisdictions in which they have compliance obligations.

Sovos’ ShipCompliant platform is the leading compliance and technology platform, automating registrations, tax calculations and reporting in the heavily regulated beverage alcohol industry. With ShipCompliant by Sovos, wineries, breweries, distilleries and other beverage alcohol companies can stay ahead of the latest regulatory changes impacting their business models. Learn more at http://sovos.com/shipcompliant.

About Wines & Vines

Wines & Vines offers a comprehensive collection of products to provide a wide range of information solutions for the wine and grape industry. Its magazine, Directory/Buyer’s Guide, Online Marketing System and soon to launch Wine Analytics Report provide news, information, marketing and research capabilities to help our clients grow and manage their businesses. For more information visit http://www.winesandvines.com.

Find out how ShipCompliant by Sovos can help your business stay on top of DtC shipping compliance in every state by signing up for a free demo.

This is a busy time of year in the beverage alcohol industry, as the grape harvest continues apace and everyone else gets ready for the upcoming holiday season with its special products and unique offerings. So we hope you’ll take a minute or two and check out the Roundup. This week we have a couple reposts from the regular blog feed, in case you missed them. Then, we look at a recent court case in Mississippi that brings up interesting issues involving states going after out-of-state shippers, plus a new disease is affecting grapevines that is being called the new Phylloxera, and why women are at the beating heart of the Bourbon industry.

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

TTB Newsletter | Top stories include restated policy on the use of controlled substances in alcohol beverages and new guidance related to distilled spirits. TTB

What’s In A Label — Webinar Recap | Along with the Colorado Brewer’s Guide, we take a broad look into label regulations and registrations. If you missed the webinar you can rewatch it here. ShipCompliant

Mississippi Rising | On Monday, August 27th the Chancery court in Mississippi upheld “passage of title” terms of sale, dismissing a case brought by the Mississippi Attorney General alleging illegal shipments of wine into the state by out-of-state retailers. Booze Rules

7 Trends Currently Affecting Wine Sales and Wine Shipping | There’s no doubt about it: Changes are coming to the wine industry. And many of the trends we are seeing on the horizon will directly affect DTC wine sales, eCommerce wine sales, and the fulfillment of both. Wine Industry Network

New Mobile Trends To Drive Sales | Embracing new mobile technologies, targeting and retargeting customers on social media, and ensuring seamless online shopping experiences are among the trends brands should embrace, Wine Business

It is hardly a revelation to say that brand labels are incredibly important in the sale of beverage alcohol. After all, in an industry with a seemingly endless supply of new SKUs, having a great label is one of the best ways to identify your products and stand out from the crowd. But when it comes to beverage alcohol labeling, a company’s marketing plan is only beginning of the story. As with so much in the beverage alcohol industry, there is a tremendous amount of regulations surrounding brand labels.

There are rules about the contents of labels: what can be on them, what has to be on them, what can never be on them. Suppliers are required to run their labels past government regulators who check on those rules. And this all occurs at both the federal and individual state levels. To help explicate this situation — at least to provide a basic understanding of what all is at issue — ShipCompliant by Sovos hosted a webinar on August, 23 to go over the ground level considerations that beverage alcohol suppliers should be aware of when bringing new products to market.

In the webinar, I was joined by Andres Gil Zaldana, Executive Director of the Colorado Brewers Guild, who brought the specific perspective of registering labels in the Centennial State.

The webinar is available here for you to rewatch, but I’ll discuss some of our key takeaways below:

Know the Federal Rules for Beverage Alcohol Labeling

The first step in navigating the world of label regulations is understanding the rules that are set forth in Title 27 of the Code of Federal Regulations (CFR). The CFR describes the guidelines that beverage alcohol suppliers must follow, and which, if followed, will get them 90% of the way. Though the CFR has different rules for the three types of beverage alcohol (beer, wine, and spirits), there are some general rules that apply to all labels.

As described in the CFR, all labels must include certain information. These include: a trade name (to identify the specific product being sold; the producer or importer’s name and address (to identify the source of the product); the product type or class (to identify what exactly is in the container — say, to discern between a whisky and an amber ale); the net contents (to identify the amount of product being sold); the government warning (to identify that, yes, alcohol can have toxic effects; and the alcoholic content (to identify how intoxicating the product is).

There are specific rules about each of these mandatory pieces of information. For instance, beer products must have net contents listed in imperial units, whereas wine and spirits must be listed in metric units. In addition, a statement of alcoholic content is optional for beer and “table wine”. Then, there is a slew of prohibited information, largely determined around the goal of preventing customer confusion. Types of prohibited label contents include health statements unsupported by scientific research, lewd and obscene images or phrases, unauthorized use of a famous person’s image (real or fictional, dead or alive), and plain-old falsehoods.

There are a lot of specifics when it comes to federal label rules, getting down even to the specific font-size for the government warning. Thankfully, the Tax and Trade Bureau (TTB) has issued product-specific manuals that go over all those specifics. Anyone designing labels should pay careful attention to these Beverage Alcohol Manuals (including, yes, a new and improved manual for wine labels). These BAMs can be found here for: beer, wine, and spirits.

Know How to Get Your Labels Approved by the TTB

To ensure that all these label rules are being followed, the federal government often requires that labels be screened by the TTB for approval. This review is known as a Certificate of Label Approval (COLA), and many labels cannot be sold in interstate commerce without getting a COLA.

There are some exceptions to getting a COLA: Beer products that are only being sold in the same state in which they are produced, and wine products with an alcohol by volume content of less than 7% both do not need a COLA. Wines and spirits that are only being sold in the same state in which they are produced will instead get a Certificate of Exemption from Label Approval.

But because receiving a COLA is often a requirement for a product to be sold, minimizing the delays in getting a COLA can be critical for a beverage alcohol supplier bringing new products to market.

Perhaps the best advice for getting a COLA quickly is to pay careful attention to the rules outlined in the CFR and scrupulously following the guidelines presented in the BAMS. It is also important to ensure your licensing information is correct — a discrepancy between your label and your federal basic permit, such as a missing trade name or a new address, is reason for the TTB to return a COLA application for correction. By using the “notes for reviewer” section, you can also help explain away some elements of your label that otherwise might raise an eyebrow.

Another key way you can avoid the COLA application process is to use the TTB’s guide for allowable revisions. These are changes that you can make to an approved label that do not require getting a new COLA. While there is no fee associated with applying for a COLA, and so it may seem free, there are still opportunity costs and the cost to the TTB for administering COLA reviews that make taking advantage of the allowable revisions process valuable.

Know How Things Work Among the States

By and large, states follow the rules and regulations outlined in the CFR regarding the allowable content of labels. So meeting those requirements should get you most of the way.

But there are some exceptions. A notable difference is statement on the alcoholic content of beer and table wines: where that is optional under the federal rules, a state could require it (e.g. Washington), or a state could specifically prohibit it (e.g. Mississippi). Such exceptions are rare, but the are something that a supplier entering a new state should make sure to look up.

Generally states are less particular about a label’s contents, trusting the COLA review for that. But they can still have intensive registration processes. For instance, states with franchise rules (rules that delimit a supplier’s ability to establish and amend the provisions of their agreements with distributors) will be more active in logging the details of a distribution arrangement.

As such, many states require more documentation than just a label or COLA for a brand label registration. They often want detailed descriptions of a distributors authorized territories, or even signed copies of a distributor agreement. Knowing what all a state may require when registering labels, and getting it all together ahead of time, can make the registration process much easier.

…And How Does it Work in Colorado?

Andres Zaldana, of the Colorado Brewers Guild, closed out the webinar, reviewing the registration process in Colorado.

As Andres noted, Colorado is one of the states that utilizes the Product Registration Online (PRO) system (a service that ShipCompliant by Sovos operates for state regulators). By working through PRO, beverage alcohol suppliers can easily get automatic approval for their labels in Colorado (other states using PRO may take longer to approve a registration), meaning they can sell those products in the state as soon as they have hit the “submit” button.

For Colorado-based brewers who only sell their beers within the state, however, there is a different system. Andres stressed that, instead of working through PRO, these brewers must instead use the “Alternative ‘Malt Liquor’ Product Registration” service, which is available here.

In recent years, Colorado has undertaken many initiatives to improve the registration process for beverage alcohol suppliers. This includes using modern online systems, like PRO, but also has entailed updating state regulations. One such change that Andres pointed out, was the removal of the 30-day waiting period for labels that were being imported into the state; as of August 1, these labels can now be sold as soon as they are entered into PRO.

The Colorado Brewers Guild works to promote the state’s craft beer industry, including by ensuring that the rules they operate under are both fair and complied with.

Remaining Questions

We always appreciate getting feedback and questions from our audience, but we are not always able to get to them or provide a complete answer in the webinar. As such, we have a follow up here:

The Craft Beverage Modernization and Tax Reform Act of 2017 changed the ABV limit for “table wine” for the purposes of calculating federal excise tax; what effect did this change have for labeling rules?

In the webinar, there was an interesting discussion about the proper definition of “table wine” for labeling purposes; this is an important distinction to recognize, as there are some differences for table wine and higher-ABV wines. Historically, the upper threshold for “table wine” has been at 14% ABV. While the CBMTRA did raise this threshold to 15% ABV, that change only affected the calculation of federal excise taxes. After reviewing documentation on the TTB’s website, it is apparent that for labeling regulations, including when a statement of alcoholic content is merely optional, “table wine” continues to be capped at 14% ABV. We apologize for any confusion on this subject.

You mentioned COLAs often when discussing state registrations, but what is the difference between a COLA and a state label registration?

A Certificate of Label Approval (COLA) is label registration with the federal government. Getting a COLA means that the TTB has reviewed your label and found that it meets the requirements found in the CFR. States can have their own, separate registration process, though. Generally this is less about getting approval for your label and more about informing the state about the labels you want to sell there, often including informing the state of your distribution agreements. Often a state registration will require supplying a copy of your COLAs. So having a COLA may be part of registering with the state, but getting a COLA and registering a label with a state are separate events.

If we only sell a wine into a state occasionally via direct shipping, what are our label registration requirements?

Registration requirements vary when it comes to suppliers making only direct-to-consumer (DtC) sales in a state. If you are selling across state borders, you do need COLAs for your labels, even if otherwise you only sell those labels in the same state where they’re produced. At the state level, the rules vary. Many states do not require registration of labels that are only being sold DtC, but some do. The rules vary from state-to-state, but they generally require only submission of a list of the brands you intend to sell DtC or the process is the same as any other label registration. For more information on DtC registration requirements, we recommend you check out our new state-by-state DtC Wine Shipping Rules pages.

If you change a label with an approved COLA in a way that is not listed on the TTB’s list of available revisions, what is the process for updating that COLA registration?

If you make changes to a label that are not in the list of allowable revisions, you will need to get a new COLA. This means submitting the label through COLAs Online and allowing the TTB to review the revised label. There are ways to make this easier, for instance by including a note to the reviewer indicating that a similar label had already been approved (include that COLA number) and pointing out the changes that you’ve made. While the old label’s COLA will remain valid, if you are permanently taking it out of distribution, you can surrender the old label’s COLA through COLAs Online iif you so choose. Instructions on surrendering a COLA can be found here.

Did you miss out on the webinar? Never fear – we recorded it for you! Head on over here to watch it in full.

On August 27, 2018, the Pennsylvania Liquor Control Board (PLCB) sent out a notice to holders of a Direct Wine Shipper License (DWS) informing of a change in the state’s reporting requirements.

Effectively immediately, DWS licensees will no longer be required to complete the quarterly “by ZIP code” shipping report, including for any past reporting periods. All other quarterly reports will still be required. These other reports include the Sales/Use Tax Return, the Excise Tax Return, and the “by product” shipping report.

The notice also states that the PLCB will soon be sending out license renewal notices for DWS licensees, and reminds DWS licensees that completion of all of their quarterly reporting requirements is a condition of that license renewal.

The move is a part of a welcome easing of the regulatory burdens DWS licensees face, following up on the move by the state earlier this year to add a file upload service to its reporting system. ShipCompliant users can expect to see this change reflected in their accounts before the next filing deadline in October.

If you have any questions regarding the simplified reportings requirements or your license renewal, the notice indicates you should reach out to RA-LBLICENSINGMOD@pa.gov or call 844-707-5475. If you have any questions regarding your ShipCompliant account, please reach out to support@shipcompliant.com.

Before we get to this week’s Roundup, we want to give a quick shout of support for everyone out there dealing with the wildfires raging across the West. Last year was a terrible year for fires, and by all accounts this year has been no better so far. We give our fervent hopes that the winds keep quiet, the temperatures drop, and some gentle rain comes to relieve things.

In this week’s Roundup, we have a guest post from Wine Institute providing guidance on new health warnings California is requiring all sellers of alcohol (including DtC wine shippers) to use, there’s a interstate squabble in New England revolving around New Hampshire’s lack of taxes, so far this year the wine market is growing with DtC sales up 8% over last year, and what can the craft spirits industry learn from craft beer’s successes and failures.

Stay up to date with the latest trends in the DtC wine market with the Sovos/Wines & Vines 2018 DtC Report. Make sure to download your copy here!

TTB Newsletter | Top stories include the Wine Beverage Alcohol Manual is back and better than ever and two new American grape varieties are now available for use. TTB

Winning Distributor Attention | Pushing this ocean of product through the chaos of a quickly changing and ever-consolidating distribution network poses monumental challenges for all suppliers and distributors alike, even the largest and most-disciplined. Wine Industry Advisor

Spirits, Beer And Lessons To Be Learned | The craft movement has taken over the world of drinks. As the number of artisan producers rises every week, could spirits learn a thing or two from their lower abv partner in the beer world? Spirits Business

In June, the United States Supreme Court ruled on South Dakota v. Wayfair, a case with major implications for eCommerce. Briefly, the ruling permits states to now impose sales tax liability on businesses regardless of where the business is located.

At the time of the ruling, we wrote that the effects of this ruling on the direct-to-consumer (DtC) wine market would only come out in the future, as most states that permit DtC wine shipments already required the sellers to collect sales tax. DtC wine shippers would only face a change if the handful of states that did not condition getting a DtC license on being a sales tax collector acted on the Wayfair ruling.

Well, now, less than two months later, we can now say that the Wayfair ruling has begun to impact the DtC wine market.

In recent weeks Iowa and Minnesota have issued notices from their respective revenue agencies indicating that in the coming months they will require remote sellers to collect and remit sales tax on sales they make into the state. This is notable because currently Iowa and Minnesota are both among the handful of states that do not require DtC wine shippers to become sales tax collectors.

DtC wine shippers selling into Iowa and/or Minnesota should therefore be aware that come January 1, 2019, and October 1, 2018, respectively, their tax liability in these states may change.

What Exactly Is Going On?

A key principle undergirds state regulations: a state should not be able to burden a person or business that does not have sufficient contact with the state (which makes sense, you don’t want Texas charging you for speeding in California). The shorthand phrase for this sufficient contact is called “nexus”, and for decades the standard for the nexus under which a state could require a business to collect sales tax was what is known as “physical presence” nexus, as set forth by the Supreme Court in the 1992 case, Quill v. North Dakota.

Ever since the Quill ruling, states have tried to stretch physical presence as much as possible. Over the years, more and more of the retail market has been diverted to “tax free” Internet sales, which lead states to stretch physical presence even more. (Internet sales are seen as “tax-free” because most online sellers sell into states other than the one(s) they have physical presence in, and therefore they are not obligated to collect sales tax — in such cases, the consumers were obligated to pay their states’ “use” tax, so they weren’t actually tax free). Eventually, the stretching became an outright effort to overturn Quill and physical presence nexus, all leading to the Wayfair decision.

Problematically, the Wayfair ruling did not actually set up a new standard for nexus, it instead merely erased the previous physical presence rules. So states now have a much more open field to play with when it comes to establishing tax requirements.

The new playing field permits states to require business who have no direct, physical connection to the state — “remote sellers” — to pay sales taxes on their sales into the state. DtC wine shippers, selling wine across state borders from, say their Napa-based winery to a resident in Des Moines, are remote sellers and so will be affected by these new rules as much as any other eCommerce business.

Positively, there is a common pattern for the new nexus rules that states are setting up, including protection for small-scale sellers, uniform reporting processes, and prohibiting retroactive tax collection. However, there are enough particularities that it makes sense to walk through each state individually.

(At Sovos, we have extensive expertise in all things sales tax. If you want a broader, non-DtC wine focused view of the Wayfair ruling, and its impact on eCommerce, we recommend you look at our blogs and webinars available here.)

Minnesota

In 2017, Minnesota passed a bill establishing a sales tax requirement on remote sellers. At the time, the bill was in direct violation of the physical presence nexus rules that used to be in effect. However, with the Wayfair ruling, these rules became enforceable.

As such, the Minnesota Department of Revenue (DOR) recently posted a basic notice for remote sellers on its website, but most people will likely find its FAQ more informative. The key things to know about Minnesota’s upcoming requirements for remote sellers are:

Qualifying remote sellers will be required to register with the Minnesota DOR and begin collecting sales tax on their sales to the state by October 1, 2018.

Minnesota has a state sales tax rate of 6.875%, with local municipalities able to impose up to an additional 1.5%.

Minnesota is a “destination-based” tax jurisdiction, meaning tax is assessed at the location where the customer takes possession of the goods.

Marketplace Providers (who provide an online environment for third-party sellers to make sales to customers, like eBay or Etsy) are required to collect and remit sales tax on behalf of their users. Remote sellers are personally responsible for collecting sales tax on sales made outside of such Marketplaces.

Iowa

Iowa passed its remote seller nexus rules only in May, clearly anticipating a positive ruling from the Supreme Court. Well, things went their way, and the state is now gearing up for enforcing these rules. A notice from the Iowa DOR is available here. The key details for Iowa’s remote seller nexus are:

Qualifying remote will be required to register with the Iowa DOR and begin collecting sales tax on their sales to the state by January 1, 2019.

Iowa has a state sales tax rate of 6%, but municipalities can impose up to an additional 1%.

Iowa is a “destination-based” tax jurisdiction, meaning tax is assessed at the location where the customer takes possession of the goods.

There is a small seller exception, so these rules will only apply if you are a remote seller who during the current or previous calendar year makes:

$100,000 or more in revenue from their sales to Iowa; or

200 or more separate sales transactions.

Note: It is unverified at this time whether these threshold numbers only apply to retail sales, or if sales for resale may count. That the rules relate to “retailers” indicates that only retail sales should apply, but this is as yet unconfirmed by the state.

Marketplace Providers again are obligated to collect and remit sales tax on behalf of their users.

And What Does This Mean For DtC Wine Shippers, Specifically?

It is very important to remember that these rules do not inherently apply to all DtC wine shippers. Wineries making DtC sales to these states should pay careful attention to the small seller exceptions; if you fall under these thresholds you will NOT be affected by these rule changes. ShipCompliant users who do meet the thresholds can at present find the necessary returns in their account, as soon as they become registered with the states DOR.

Indeed, many DtC wine shippers may be far from reaching the revenue thresholds in either state: according to our annual DtC report, in 2017 Iowa saw only $15 million in total DtC shipments; and Minnesota limits wineries to shipping only 2 cases per customer per year. This does not mean that no one will hit the revenue threshold, but it does indicate that the numbers of wineries who do could be limited.

However, there is still the separate sales thresholds that each state applies. Here, things are still a little hazy with the biggest open question being “what is a ‘separate sales transaction’”?

This matters because it’s not always clear when a transaction has happened. One-off sales may be clear, but what about club or subscription sales? Is there a transaction each time there’s a payment of money, or each time a package is shipped? Would a winery who charges each time it ships a wine club order be making more separate transactions than a winery who charges only once per year, even if they ship the same amount of wine at the same frequency.

And, while Minnesota’s rule seems to include only retail transactions, Iowa’s is less clear — it’s possible that a wineries sales to Iowa wholesalers for resale could be included in these thresholds. (Though we do want to caution, based on past experience it is unlikely that the state will take that position.)

Due to the uncertainty in some of these rules and how they may apply to the specific conditions of some wineries (for instance, large, corporate wine groups making many sales across many platforms will have to deal with the small-seller thresholds differently than a single-shop operation), it is highly recommended that you consult with counsel or accountants before registering as a sales tax collector in either Iowa or Minnesota.

Final Thoughts

In a way, DtC wine shippers are well positioned for this new post-Wayfair world of sales tax rules because they have been already dealing with these type of rules for years. Indeed, ShipCompliant by Sovos was founded in large part to help wineries with their interstate sales tax compliance, and it remains a key part of our platform today.

But that does not mean that DtC wine shippers are immune from the changes in state sales tax rules that are coming down the line. These notices from Iowa and Minnesota are proof of that. Going forward, the remaining states that currently do not require DtC wine shippers to collect sales tax, but could if they change their nexus requirements, are: Colorado, Florida, Missouri, and Nevada.

Similarly, there are states that do not require DtC wine shippers to collect local tax (like Texas), or those that impose a tax other than sales tax (like Kansas with its “Occupational Tax”). Depending on if, and how, they change their nexus rules, DtC wine shippers could be caught up in their novel tax schemes.

As tax policies change, and as states change their rules to reflect those policies, it is critical for businesses to stay ahead of the change. This often necessitates using tools designed to navigate the complicated regulatory systems.

ShipCompliant by Sovos is committed to providing the support that the DtC wine market needs to meet its regulatory needs, including by informing the market of important rule changes and maintaining a cutting-edge system designed to meet the evolving regulatory environment. We encourage you to follow this blog to get the information you need to stay compliant.

Find out how ShipCompliant by Sovos can help your business stay on top of compliance in every state by signing up for a free demo.

On August 30, 2018, newly-amended Prop 65 clear and reasonable warning regulations that apply to any winery that sells and ships their products to consumers in the State of California come into effect. The new regulations (27 CCR § 25607.3 and 27 CCR § 25607.4) require a Prop 65 Alcohol Beverage Warning language to be displayed on winery websites, on or in packages containing direct-to-consumer orders sent to a California address and in California winery tasting rooms.

Wineries that did not opt in to the 2014 Proposition 65 Consent Judgement negotiated by Wine Institute must use the new clear and reasonable Prop 65 Alcohol Warning language that includes a hyperlink to the OEHHA website. Wineries, however, that opted in to the Consent Judgement may continue to use the current alcohol warning after the new regulations become effective on August 30, 2018.

Wineries that produce and sell products with can, lid and/or bottle cap liners containing BPA must also post the new Point of Sale BPA warning on their website and in California winery tasting rooms, and include the new Point of Display BPA Warning in or on direct-to-consumer shipments sent to a California address. As each winery has different practices, please consult your legal counsel or compliance department to determine if any of your products contain BPA. Written certification letters from your packaging suppliers and laboratory testing and analysis are methods that may help determine if any of your winery’s products contain BPA.

The chart and summary below provide a quick reference to the clear and reasonable warning regulations for Alcohol Beverages and BPA.

Direct-to-Consumer Shipments

For alcohol beverages shipped to consumers in California, the Alcohol Warning is required to appear on or in the shipping container or delivery package in a type size that is no smaller than the largest type size used for other consumer information on the product. In no instance may the alcohol warning appear in a type size that is smaller than 8-point. The warning message must be readable and conspicuous to the recipient prior to consumption of the alcoholic beverages.

Wineries not covered by the 2014 Consent Judgement must use the new Alcohol Warning language.

If the product contains BPA, the new Point of Display BPA Warning must also be included.

Website and Catalogs

The Alcohol Warning must be prominently displayed on the website so that the consumer sees the warning on their website prior to completing the purchase. OEHHA does not consider a warning to be “prominently displayed” if the consumer has to search for the warning on the business’s website. Note that wineries are not required to display a warning to consumers outside of California.

Wineries not covered by the 2014 Consent Judgement must use the new Alcohol Warning language.

If products contain BPA, the new Point of Sale BPA Warning must also be included.

For more details see the updated PROPOSITION 65 CLEAR AND REASONABLE WARNINGS QUESTIONS AND ANSWERS FOR BUSINESSES: INTERNET AND CATALOG WARNINGS on the Office of Environmental Health Hazard Assessment California Environmental Protection Agency (OEHHA) website which you may access here.

California Winery Tasting Rooms

The Alcohol Warning should be provided using one or more of the following methods:

An 8 1/2 by 11-inch sign in no smaller than 22-point type, placed at eye level so that it is readable and conspicuous to customers as they enter the area or areas where, by permit or license, alcoholic beverages are served.

A notice or sign no smaller than 5 by 5 inches placed at each retail point of sale or display so as to assure that it is readable and conspicuous. The warning message must be in a type size no smaller than 20-point type and be enclosed in a box.

For alcoholic beverages provided for consumption on the premises served by food or beverage persons, or sold through an over-the-counter service, the warning message is provided on a menu or list identifying the alcoholic beverages served on the premises. If there is no menu or list identifying the alcoholic beverages served on the premises, then the warning message is provided on the menu or list identifying the food or other beverages sold on the premises.

Wineries not covered by the 2014 Consent Judgement must use the new Alcohol Warning language. If the products offered for sale contain BPA, the new Point of Sale BPA Warning must also be displayed.

Businesses with fewer than 10 employees are exempt from ALL Prop 65 requirements. Therefore, qualified businesses are not required to provide BPA and Alcohol warning signs.